Avoiding Property Pitfalls: Key Tips Before Purchasing in Malaysia

This post was originally posted on Planner Bee.

Buying property is a significant financial commitment, and purchasing overseas property requires extra care. It’s crucial to understand the local laws and regulations before entering into any agreement.

Recent reports of Singaporeans facing legal disputes with developers in Malaysia highlight the need for thorough research. To avoid similar issues, here are the key factors to consider before purchasing property in Malaysia:

1. Verify developer credibility

Before purchasing property, it’s essential to check the developer’s reputation to ensure they are reliable. Here’s how to start:

• Check reviews and complaints: Look into past projects and customer feedback.
• Registration status: Confirm the developer is registered with Malaysia’s Ministry of Housing and Local Government (KPKT).
• Avoid red flags: Be cautious of ongoing lawsuits or unfinished projects.

2. Understand legal protections and agreements

Familiarise yourself with Malaysia’s legal requirements for property purchases:

• Sales and Purchase Agreement (SPA): Ensure the agreement follows the Housing Development Act 1966.

Malaysia’s Housing Development (Control and Licensing) Act 1966 (HDA) provides protection for buyers by regulating housing projects and ensuring developers meet specific standards. Developers must have a license to sell properties and follow strict terms outlined in the Standard Sale and Purchase Agreement (SPA). This helps ensure transparency and accountability.

The HDA also guarantees a Defects Liability Period (usually 24 months after property handover), during which developers must fix any construction issues at no cost to the buyer. Additionally, a Housing Development Account (HDA) is required, where developers must deposit funds to ensure the project’s completion. This reduces the risk of abandoned developments. If disputes arise, the Tribunal for Homebuyer Claims provides an efficient and cost-effective way for consumers to seek resolution.

• Strata titles: Confirm whether the property has or will receive a strata title to guarantee ownership. Be cautious of properties that may be offered under a private lease scheme (PLS), as this could mean you’re purchasing a leasehold rather than full ownership, as was the case for a group of Singaporean buyers who bought properties under a PLS.

A PLS in Malaysia is a property arrangement where buyers acquire leasehold rights to a property for a specified period, typically between 30 and 99 years, rather than full ownership. Under this scheme, the land remains under the developer’s ownership, and buyers effectively lease the property for the agreed duration. Once the lease expires, the rights to the property revert to the landowner unless an extension is negotiated. This scheme is often used for residential developments in high-demand areas to make housing more affordable while allowing developers to retain long-term control over the land.

• Encumbrances: Encumbrances refer to any legal claims or restrictions that may affect the property’s ownership or use. These need to be checked and resolved before buying or selling property, as they can limit your rights as an owner. Be sure to check for liens or restrictions on the property title.

3. Cross-border buying challenges

Foreign buyers in Malaysia face certain restrictions:

• Price thresholds: In Malaysia, the price threshold for foreigners purchasing property is set to ensure local housing affordability and regulate foreign ownership. The minimum price varies by state, reflecting local property market dynamics, but typically ranges from RM600,000 to RM1 million. For example, in Selangor and Kuala Lumpur, the threshold is RM1 million, while in Johor, it can be as low as RM600,000 for certain types of properties. This threshold generally applies to residential properties and excludes low-cost or affordable housing designated for local citizens. Some states may impose additional restrictions or fees, such as requiring approval from state authorities.
• Prohibited properties: Some types of low-cost or medium-cost housing may not be available to foreigners.
• Currency risk: Be mindful of exchange rate fluctuations when making payments.

4. Evaluate property type and location

• Freehold vs. leasehold: Freehold properties offer perpetual ownership, while leasehold properties are limited to a fixed period (e.g., 99 years).
• Location factors: Consider the property’s proximity to amenities, infrastructure development, and the reputation of the neighbourhood, as these can affect its long-term value.

5. Additional expenses

There are often extra costs when purchasing property that may be overlooked. Be sure to account for the following in your financial planning:

• Stamp duty: Payable on both the SPA and loan agreement.
• Legal and valuation fees: Necessary for processing and verification.
• Maintenance charges: Ongoing costs for strata properties.
• Loan fees and interest: Understand the terms and compare financing options.

6. Risks of purchasing units under construction

Buying a property still under construction comes with additional risks. Consider the following:

• Project delays or failures: Does the developer have the financial strength to complete the project as promised?
• Incomplete features: What defects will the developer be responsible for fixing?

Ensure you’re clear on these aspects before signing any agreements.

7. Get professional assistance

Property buying can be overwhelming, especially with the legal jargon involved. To help you navigate the process:

• Consider hiring a lawyer to review contracts and ensure compliance with Malaysian laws.
• Work with a licensed real estate agent who has local expertise.
• Consult a tax expert to understand the Real Property Gains Tax (RPGT) and other potential tax implications.

8. Understand dispute resolution options

Even with thorough research, disputes can still arise. To protect your interests, make sure to keep all documentation, from correspondence to agreements.

It’s also important to familiarise yourself with Malaysia’s legal framework for property disputes. For added peace of mind, consider purchasing title insurance as an extra layer of protection.

9. Monitor market conditions

Stay informed about market trends and potential risks, particularly any changes in government policies. Keep an eye on new regulations that could impact foreign buyers.

In some areas, an oversupply of property can affect demand and property values. Researching such issues will help you make a more informed decision.

Key takeaways from recent cases

Recent disputes highlight the importance of taking proactive steps to ensure legal clarity and financial security when investing in property. Buying property in Malaysia can be a great investment, but it requires careful preparation and expert advice. Thorough research and understanding of local regulations are key to avoiding costly mistakes and protecting your investment.

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